Dr. Nouriel Roubini, a well-known American economist who accurately predicted the 2008 financial crisis, recently remarked that “there has been a total collapse this year in the cryptocurrency game. It’s a crypto apocalypse.”
Roubini’s comments came during the BlockShow Conference, which was held in Las Vegas on August 20. Going on to further criticize cryptocurrencies at the conference, the New York University professor noted that,
“Bitcoin is not money. To be money it would need to be a unit of account, means of payment, and a stable source of value and purchasing power. Bitcoin is none of these. Other cryptos are worse.”
The International Monetary Fund (IMF) and World Bank advisor also compared the efficiency (or lack thereof) of Bitcoin (BTC) and other blockchain-based payment networks to the more widely used Alipay, PayPal, and Square money transfer systems. “Today’s digital systems are used by millions of people per day, and have nothing to do with blockchain,” Roubini said.
Decentralization Is A “Myth”
According to the New Keynesian economics scholar, “Decentralization is a myth” because digital asset exchanges, crypto platform development teams, miners (or transaction validators), and the funds stored on blockchain networks are all centralized.
Roubini explained that cryptocurrency mining is a very competitive process that usually requires purchasing expensive computing hardware and consumes a lot of electricity. In order to reduce or minimize the cost of mining digital currencies, miners often share their resources by creating centralized mining pools, Roubini noted.
Elaborating, the economics professor pointed out that “the top five mining pools control 70% of all mining.” Roubini also claimed that most mining pools are located in countries like Belarus, Russia, and China. Per the economist, there are many crypto-related organized crime networks operating in these areas.
“Bitcoin Wealth Is More Centralized Than North Korean Wealth”
Roubini further argued that cryptocurrency wealth was centralized as well. To prove his assertion, he referred to the Gini coefficient (or Gini ratio), a measure of statistical dispersion that shows the wealth distribution of a country’s residents or a select group of people.
A Gini coefficient of 1 (or 100%) indicates that only one person has all the wealth and a value of 0 (or 0%) means there is “perfect equality” of wealth, or that income is equally distributed among all members of a population.
Using the statistical measure of wealth, Roubini noted that the Gini coefficient in Europe is of around 50%. He added there is an extreme wealth inequality in North Korea as its Gini coefficient is of about 86%. Bitcoin’s, however, is even higher at 88%. as such, Roubini argued that “Bitcoin wealth is more concentrated than North Korean wealth.”
Moreover, the international economics expert also criticized initial coin offerings (ICOs) and the emergence of thousands of tokens in the cryptocurrency market. He said,
“A world with thousands of tokens makes zero economic sense. Tokens are only good for gouging consumers.”
He added that “ICOs are effectively non-compliant securities” while claiming they are often promoted as utility tokens. Roubini then claimed this is often done so their issuers can avoid securities laws, a move both misleading and illegal.
Smart Contracts Are “Neither Smart Nor Contracts”
Notably, Roubini’s views about Ethereum’s smart contracts are not very positive either. He said “they’re neither smart nor contracts” and often have bugs in their source code. Furthermore, various lawyers have questioned the legitimacy of blockchain-based smart contracts. He was also critical of decentralized apps (DApps) built on Ethereum and other crypto platforms.
“75% of dapps are Crypto Kitties, Ponzi schemes, and casino games.”
Commenting on the perceived uselessness of blockchains, the professor said,
“A peer-to-peer distributed public ledger is total nonsense.”
In reality, most legitimate blockchain networks are actually private and permissioned, and are operated by highly centralized organizations, according to Roubini.
As CryptoGlobe reported in May, professor Nouriel Roubini has called the blockchain “a glorified Excel spreadsheet”, while speaking at a conference in Beverly Hills, California. Notably, the economist’s comments led to heated arguments from crypto and blockchain enthusiasts.